1.

The important General Banking Loans provisions concerning loans are

the following:

Sec. 35. Limit on Loans, Credit Accommodations and Guarantees. -

35.1. Except as the Monetary Board may otherwise prescribe for reasons of
national interest, the total amount of loans, credit accommodations and
guarantees as may be defined by the Monetary Board that may be extended
by a bank to any person, partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) of the net worth of such bank.
The basis for determining compliance with single borrower limit is the total
credit commitment of the bank to the borrower.

35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans,
credit accommodations and guarantees prescribed in the preceding
paragraph may be increased by an additional ten percent (10%) of the net
worth of such bank provided the additional liabilities of any borrower are
adequately secured by trust receipts, shipping documents, warehouse
receipts or other similar documents transferring or securing title covering
readily marketable, non-perishable goods which must be fully covered by
insurance.

35.3. The above prescribed ceilings shall include:

(a) the direct liability of the maker or acceptor of paper discounted with or sold to
such bank and the liability of a general endorser, drawer or guarantor who
obtains a loan or other credit accommodation from or discounts paper with
or sells papers to such bank;

(b) in the case of an individual who owns or controls a majority interest in a

corporation, partnership, association or any other entity, the liabilities of said
entities to such bank;

(c) in the case of a corporation, all liabilities to such bank of all subsidiaries in
which such corporation owns or controls a majority interest; and
(d) in the case of a partnership, association or other entity, the liabilities of the
members thereof to such bank.

35.4. Even if a parent corporation, partnership, association, entity or an

individual who owns or controls a majority interest in such entities has no
liability to the bank, the Monetary Board may prescribe the combination of
the liabilities of subsidiary corporations or members of the partnership,
association, entity or such individual under certain circumstances, including
but not limited to, any of the following situations: .

(a) the parent corporation, partnership, association, entity or individual

guarantees the repayment of the liabilities;

(b) the liabilities were incurred for the accommodation of the parent corporation
or another subsidiary or of the partnership or association or entity or such
individual; or

(c) the subsidiaries though separate entities operate merely as departments or

divisions of a single entity.

35.5. For purposes of this Section, loans, other credit accommodations and
guarantees shall exclude:

(a) loans and other credit accommodations secured by obligations of the Bangko
Sentral or of the Philippine Government;

(b) loans and other credit accommodations fully guaranteed by the government
as to the payment of principal and interest;

(c) loans and other credit accommodations covered by assignment of deposits

maintained in the lending bank and held in the Philippines;
(d) loans, credit accommodations and acceptances under letters of credit to the
extent covered by margin deposits; and

(e) other loans or credit accommodations which the Monetary Board may from
time to time, specify as non-risk items.

35.6. Loans and other credit accommodations, deposits maintained with, and
usual guarantees by a bank to any other bank or non-bank entity, whether
locally or abroad, shall be subject to the limits as herein prescribed.

35.7. Certain types of contingent accounts of borrowers may be included

among those subject to these prescribed limits as may be determined by the
Monetary Board.

Sec. 36. Restriction on Bank Exposure to Directors, Officers,

Stockholders and Their Related Interests. - No director or officer of any
bank shall, directly or indirectly, for himself or as the representative or agent
of others, borrow from such bank nor shall he become a guarantor, endorser
or surety for loans from such bank to others, or in any manner be an obligor
or incur any contractual liability to the bank except with the written approval
of the majority of all the directors of the bank, excluding the director
concerned: Provided, That such written approval shall not be required for
loans, other credit accommodations and advances granted to officers under
a fringe benefit plan approved by the Bangko Sentral. The required approval
shall be entered upon the records of the bank and a copy of such entry shall
be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their
related interests shall be upon terms not less favorable to the bank than
those offered to others.

After due notice to the board of directors of the bank, the office of any bank
director or officer who violates the provisions of this Section may be declared
vacant and the director or officer shall be subject to the penal provisions of
the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit
accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or
controlled by said directors, officers, stockholders and their related interests.
However, the outstanding loans, credit accommodations and guarantees
which a bank may extend to each of its stockholders, directors, or officers
and their related interests, shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital
contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk
by the Monetary Board shall be excluded from such limit: Provided, further,
That loans, credit accommodations and advances to officers in the form of
fringe benefits granted in accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual limit.

The Monetary Board shall define the term “related interests.”

The limit on loans, credit accommodations and guarantees prescribed herein

shall not apply to loans, credit accommodations and guarantees extended by
a cooperative bank to its cooperative shareholders.

Sec. 37. Loans and Other Credit Accommodations Against Real

Estate. – Except as the Monetary Board may otherwise prescribe, loans and
other credit accommodations against real estate shall not exceed seventy-
five percent (75%) of the appraised value of the respective real estate
security, plus sixty percent (60%) of the appraised value of the insured
improvements, and such loans may be made to the owner of the real estate
or to his assignees.

Sec. 38. Loans And Other Credit Accommodations on Security of

Chattels and Intangible Properties. - Except as the Monetary Board may
otherwise prescribe, loans and other credit accommodations on security of
chattels and intangible properties such as, but not limited to, patents,
trademarks, trade names, and copyrights shall not exceed seventy-five
percent (75%) of the appraised value of the security, an such loans and other
credit accommodation may be made to the title-holder of the chattels and
intangible properties or his assignees.

Sec. 39. Grant and Purpose of Loans and Other Credit

Accommodations. - A bank shall grant loans and other credit
accommodations only in amounts and for the periods of time essential for
the effective completion of the operations to be financed. Such grant of
loans and other credit accommodations shall be consistent with safe and
sound banking practices.
The purpose of all loans and other credit accommodations shall be stated in
the application and in the contract between the bank and the borrower. If the
bank finds that the proceeds of the loan or other credit accommodation have
been employed, without its approval, for purposes other than those agreed
upon with the bank, it shall have the right to terminate the loan or other
credit accommodation and demand immediate repayment of the obligation.

Sec. 40. Requirement for Grant Of Loans or 0ther Credit

Accommodations. - Before granting a loan or other credit accommodation,
a bank must ascertain that the debtor is capable of fulfilling his
commitments to the bank.
Toward this end, a bank may demand from its credit applicants a statement
of their assets and liabilities and of their income and expenditures and such
information as may be prescribed by law or by rules and regulations of the
Monetary Board to enable the bank to properly evaluate the credit
application which includes the corresponding financial statements submitted
for taxation purposes to the Bureau of Internal Revenue. Should such
statements prove to be false or incorrect in any material detail, the bank
may terminate any loan or other credit accommodation granted on the basis
of said statements and shall have the right to demand immediate repayment
or liquidation of the obligation.
In formulating rules and regulations under this Section, the Monetary Board
shall recognize the peculiar characteristics of micro financing, such as cash
flow-based lending to the basic sectors that are not covered by traditional
collateral.

Sec. 41. Unsecured Loans or Other Credit Accommodations. – The

Monetary Board is hereby authorized to issue such regulations as it may
deem necessary with respect to unsecured loans or other credit
accommodations that may be granted by banks.

Sec. 42. Other Security Requirements for Bank Credits. - The

Monetary Board may, by regulation, prescribe further security requirements
to which the various types of bank credits shall be subject, and, in
accordance with the authority granted to it in Section 106 of the New Central
Bank Act, the Board may by regulation, reduce the maximum ratios
established in Sections 36 and 37 of this Act, or, in special cases, increase
the maximum ratios established therein.
Sec. 43. Authority to Prescribe Terms and Conditions of Loans and
Other Credit Accommodations. - The Monetary Board, may, similarly in
accordance with the authority granted to it in Section 106 of the New Central
Bank Act, and taking into account the requirements of the economy for the
effective utilization of long-term funds, prescribe the maturities, as well as
related terms and conditions for various types of bank loans and other credit
accommodations. Any change by the Board in the maximum maturities, as
well as related terms and conditions for various types of bank loans and
other credit accommodations. Any change by the Board in the maximum
maturities shall apply only to loans and other credit accommodations made
after the date of such action.

The Monetary Board shall regulate the interest imposed on micro finance
borrowers by lending investors and similar lenders such as, but not limited
to, the unconscionable rates of interest collected on salary loans and similar
credit accommodations.

Sec. 44. Amortization on Loans and Other Credit Accommodations.

- The amortization schedule of bank loans and other credit accommodations
shall be adapted to the nature of the operations to be financed.

In case of loans and other credit accommodations with maturities of more

than five (5) years, provisions must be made for periodic amortization
payments, but such payments must be made at least annually: Provided,
however, That when the borrowed funds are to be used for purposes which
do not initially produce revenues adequate for regular amortization
payments therefrom, the bank may permit the initial amortization payment
to be deferred until such time as said revenues are sufficient for such
purpose, but in no case shall the initial amortization date be later than five
(5) years from the date on which the loan or other credit accommodation is
granted.

In case of loans and other credit accommodations to micro finance sectors,

the schedule of loan amortization shall take into consideration the projected
cash flow of the borrower and adopt this into the terms and conditions
formulated by banks.

Sec. 45. Prepayment of Loans and Other Credit Accommodations. –

A borrower may at any time prior to the agreed maturity date prepay, in
whole or in part, the unpaid balance of any bank loan and other credit
accommodation, subject to such reasonable terms and conditions as may be
agreed upon between the bank and its borrower.

Sec. 46. Development Assistance Incentives. - The Bangko Sentral shall

provide incentives to banks which, without government guarantee, extend
loans to finance educational institutions cooperatives, hospitals and other
medical services, socialized or low-cost housing, local government units and
other activities with social content.

Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of

foreclosure, whether judicially or extra-judicially, of any mortgage on real
estate which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation shall have the right within one year after
the sale of the real estate, to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at rate specified in the
mortgage, and all the costs and expenses incurred by the bank or institution
from the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned whether in
a judicial or extra-judicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with
law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course
only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may suffer
by the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of this Act shall retain their redemption rights until
their expiration.

Sec. 48. Renewal or Extension of Loans and Other Credit

Accommodations. – The Monetary Board may, by regulation, prescribe the
conditions and limitations under which a bank may grant extensions or
renewals of its loans and other credit accommodations.
Sec. 49. Provisions for Losses and Write-Offs. - All debts due to any
bank on which interest is past due and unpaid for such period as may be
determined by the Monetary Board, unless the same are welt-secured and in
the process of collection shall be considered bad debts within the meaning of
this Section.
The Monetary Board may fix, by regulation or by order in a specific case, the
amount of reserves for bad debts or doubtful accounts or other
contingencies.
Writing off of loans, other credit accommodations, advances and other assets
shall be subject to regulations issued by the Monetary Board.

2. If I am the bank lending officer, the factors that I will take into
consideration before granting a loan are the following:

a. First is the amount of the loan. Because General Banking Law

provides that banks shall grant loans and other credit accommodations only
in amounts and for periods of time essential to the effective completion of
operations to be financed, “consistent with safe and sound banking
practices". In connection to this, the purpose of the loan must be stated in
the application and documentation.

b. Second is the rule on Single Borrowers Limit which is the total

amount of loans, credit accommodations and guarantees that maybe
extended by a bank to any single person, partnership, association,
corporation or other entities which is the 25% net worth of the bank. The
basis of determining compliance with the SBL is the total credit commitment
of the bank to the borrower.

c. Third is the purpose. The General Banking Law requires that the
purpose of all loans and other credit accommodations shall be stated in the
application. Its importance is that If the bank finds that the proceeds of the
loan or other credit accommodation have been employed, without its
approval, for purposes other than those agreed upon with the bank, it shall
have the right to terminate the loan or other credit accommodation and
demand immediate repayment of the obligation. Besides, the MORB prohibits
banks from requiring their borrowers to acquire shares of stock of the lending
bank out of the loan or other credit accommodation proceeds from the same
bank.

d. Fourth is the credit worthiness of the borrower. It is important to

determine the credit worthiness of the borrower in order to ascertain if the
borrower is capable of fulfilling his obligation to the bank.
 e. Fifth is the signatories. It is important to ascertain if the signatories
have legal capacity or have the proper authority to bind the person or
judicial entity he represents.

Section 40 of the General Banking Law provides the requirements

needed for grant of loans or other credit accommodations:

“Before granting a loan or other credit accommodation, a bank must

ascertain that the debtor is capable of fulfilling his commitments to the bank.

Toward this end, a bank may demand from its credit applicants a
statement of their assets and liabilities and of their income and expenditures
and such information as may be prescribed by law or by rules and
regulations of the Monetary Board to enable the bank to properly evaluate
the credit application which includes the corresponding financial statements
submitted for taxation purposes to the Bureau of Internal Revenue. Should
such statements prove to be false or incorrect in any material detail, the
bank may terminate any loan or other credit accommodation granted on the
basis of said statements and shall have the right to demand immediate
repayment or liquidation of the obligation”.

Subsection X3041 of the MORB imposes also additional requirements

requiring submission and maintaining on file updated ITR’s of the borrower,
and his co-maker, if applicable, duly stamped as received by the BIR
together with supporting financial statements, as applicable. Fls shall
likewise require borrowers to execute a waiver of confidentiality of client
information and or an authority of the FI to conduct random verification with
the BIR in order to establish authenticity of these documents.

3. DOSRI means Directors, Officers, Stockholders and their Related

Interests.

No, DOSRI transactions are not illegal.

DOSRI transactions are only regulated because the law does “not want
banks to make unsound credit decisions because of insider pressure and we
do not want-banks to have earnings reduced as a result of self-dealing on
more favorable terms than would be available to other bank cust0mers.

Restriction is also designed to prevent undue advantage to be granted

to such bank officers and their related interests in the grant of bank loans,
credit accommodations, and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related
interests.